Bottom of the Pyramid: A Corporate Economist’s Perspective

1. Bottom of the Pyramid:A Corporate Economist’s Perspective Paul ThomasChief EconomistIntel Corporation The Bottom of the Pyramid in PracticeUniversity of California, IrvineJune 2, 2009

2. What is BOP? • The poorest x Billion people in the world (people, not countries or regions) on a per capita basis (not household or family) • Per capita income less than $2 a day • Why a pyramid? An empirical claim or poetic license? What happened to the Emerging Middle Class? • Answer: That was a different conference

3. Marketing Hype? (We are among friends, right?) • Starting from the bottom, how many people are in families earning less than $2 per day? • Probably a good deal less than 4 billion people, maybe 2 billion? • How much purchasing power do these people have? • Do NOT use PPP. Why not? • Should we adjust for hidden economy? • Don’t exaggerate – these are poor people, aren’t they? • Probably have income of about $1TN to $2TN, lots of money but lots of people and needs

4. What are real issues for BoP? • Can be mired in poverty • Low life expectancy, high infant mortality • Often one setback (disease, injury, monsoon, crime, war) away from disaster • Social and legal barriers to progress • Role of neighbors and local elites • What if adjust for quality of life? • Even poorer in spite of PPP and social capital arguments

5. What are hopeful signs for BoP? • Rapidly rising per capita income in China, India, Southeast Asia, Emerging Europe, Latin America, Middle East, Africa through 2007. Why? • Community, NGO, and government programs? • Market growth? • Technology? • Distribution of income • National convergence • Divergence within nations • BoP population diminishing, income increasing

6. Romance of BoP • Too poor and too different to be viewed “just” as consumers? • Claimed that need to view BoP as potential producers and partners • Is this different from normal corporate model? • Local support and barriers • Brand management • Customers as community: Apple, Amazon, Microsoft, Toyota, Honda, Avon, Johnson & Johnson

7. Practicalities of BoP • Inappropriate technology is real danger although over-diagnosed • Delivery and payments probably do need to be customized • Customers and fellow suppliers as partners: real potential for improved design and usage models • Claim: Digital products are ALWAYS used in surprising ways (CPUs – Tedlow story) • Second claim: Feedback from BoP to ToP inevitable

8. Practicalities of BoP • All new markets surprise, including BoP • Every market is potentially disruptive, including BoP • Can be good or bad for company and elites • Often good for consumers and for social progress • Need to watch and correct for negative externalities • Digital inclusion is package of goals and programs that has own momentum, very much owned by users who define themselves as partners.

9. Economics questions about BoP • Sizing questions, snapshot and trend • Need for product variation? • Distribution costs, local production costs • Role of customer in defining usage and shaping product • Transaction cost mitigation – technology and institutions • Role of government, NGOs, elites • Role of markets, large and small businesses